10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1994 OR [ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to Commission File No. 0-12001 S T. J O E P A P E R C O M P A N Y (Exact name of registrant as specified in its charter) Florida 59-0432511 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Suite 400, 1650 Prudential Drive Jacksonville, Florida 32207 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (904) 396-6600 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, No par value New York Stock Exchange Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] The aggregate market value of registrant's Common Stock held by non-affiliates based on the closing price on March 15, 1995 was $560,474,346. As of March 15, 1995 there were 30,498,650 shares of Common Stock No par value outstanding. DOCUMENTS INCORPORATED BY REFERENCE (Specific pages incorporated are identified under the applicable item herein.) Portions of the Registrant's Annual Report to Stockholders for 1994 (the 1994 Annual Report to Stockholders) are incorporated by reference in Part I and Part II of this Report. Portions of the Registrant's definitive Proxy Statement dated March 31, 1995 (the "Proxy Statement") are incorporated by reference in Part III of this Report. Other documents incorporated by reference in this Report are listed in the Exhibit Index. PART I ITEM 1. BUSINESS As used throughout this Form 10-K Annual Report, the terms "St. Joe", "Company" and "Registrant" means St. Joe Paper Company and its consolidated subsidiaries unless the context indicates otherwise. GENERAL St. Joe was incorporated in 1936 under the laws of the State of Florida. The general purposes of the Company at incorporation were (1) to manufacture, buy, sell, import, export and deal in pulpwood, woodpulp, paper, paperboard, all raw material thereof, and products and by-products therefrom and to establish, operate and maintain mills, plants and factories for such purpose and (2) to buy, hold, own, work, develop, improve, divide or sub- divide, sell, convey, lease, mortgage, pledge, exchange and otherwise deal in and dispose of all kinds of real and personal property. The Executive Offices of St. Joe are located in Suite 400, duPont Center, 1650 Prudential Drive, Jacksonville, Florida, 32207, and its telephone number is 904/396-6600. St. Joe is at present primarily engaged in two industry segments: (1) the growing and harvesting of timber, and the manufacturing, distribution and sale of forest products and (2) transportation of goods by rail. The Registrant also is engaged in three other industry segments in which it derives income: (1) growing and processing of sugarcane into raw sugar, (2) telephone communications and (3) real estate. Other income was derived from Company investments in securities, gains on disposition of property and other miscellaneous items. Financial information as to revenue, operating profits and identifiable assets by industry segment is set forth in footnote 11 to the Consolidated Financial Statements on pages 28 and 29 of the 1994 Annual Report to Stockholders of this Report. Below is a description of each of these industry segments with information to the extent necessary and material in order that the Company's business taken as a whole can be understood. Forest Products The Company is a vertically integrated producer of corrugated containers. It owns approximately 700,000 acres of timberland (most of which is located in northwestern Florida), a paper mill located in Port St. Joe, Florida, and 16 container plants located throughout the eastern half of the United States. The Company's timberland and forestry operations supply wood chips and pulpwood to the mill, which produces linerboard, some of which is bartered for corrugating medium. The container plants convert the linerboard and corrugating medium into corrugated containers. The Company produces and sells a wide variety of corrugated containers to processors and manufacturers in the food, agricultural, paper, petrochemical, plastics, electronics, (2) electrical equipment and machinery industries. Demand for corrugated containers is cyclical and correlates closely with real growth in the United States gross national product and also with population and other demographic factors. The corrugated container industry is highly competitive, with over 1,500 container plants in the United States. When demand for corrugated containers falls, the ability to maintain prices by adjusting inventory levels is limited because container plants and paper mills operate most economically at or near full capacity. In addition, although corrugated containers are the dominant form of transport packaging nationally, corrugated containers compete with various other packaging materials, including paper, plastic, wood and metal. The Company's operating strategy for its Forest Products sector has been to reduce unit production costs by increasing operating efficiency and maximizing capacity utilization. In addition, the Company emphasizes the marketing and production of higher margin products such as the Company's mottled white linerboard and high performance linerboard, over unbleached linerboard. The Company's paper mill, located at Port St. Joe, Florida, produces mottled white and unbleached linerboard, a principal component of corrugated containers. The mill can produce linerboard in a full range of grades and weights. Set forth below is certain information as to mill linerboard production for the years indicated: Linerboard Production (In tons) Total Average Daily Year Production Production* 1994 477,990 1,375 1993 444,005 1,254 1992 425,087 1,266 1991 433,352 1,308 1990 454,342 1,327 *Average daily production is computed by dividing the total production of each paper machine by the number of days on which such paper machine operates each year. In 1993 and 1994, approximately 45% and 52%, respectively, of mill production in tons was mottled white linerboard marketed by the Company under the trade name "Crest White." Demand for mottled white linerboard has increased significantly in recent years. Mottled white linerboard, which is more aesthetically attractive than unbleached linerboard, in 1994 sold at approximately 39% over the price of unbleached linerboard while, in 1993, (3) this upcharge was 49%. Since mottled white linerboard offers significantly higher profit margins than unbleached linerboard, the Company has emphasized, and expects to continue to emphasize, the production of mottled white over unbleached linerboard. Approximately 58% of the Company's mottled white linerboard production in 1994 was traded to other producers under trade agreements in exchange for corrugating medium or kraft liner. The capital expenditures at the paper mill in 1993 for maintenance and upgrade were $18.5 million which compares to $20.3 million for the 1994 capital and maintenance expenditures. The 1995 budget for maintenance and upgrade at the paper mill is $21.1 million. The Company has sought to lower its energy costs at the mill by using increasing amounts of timber harvesting and pulp mill by-products as energy sources. The mill's boilers use "biomass" fuel (scrub wood, bark and timber wastes) and "black liquor" solids (a by-product of the wood pulping process) to meet a substantial percentage of the mill's energy requirements. In 1994 fuel oil and natural gas accounted for 35.1% of mill energy requirements. Black Liquor solids and biomass supplied most of the mill requirements. The Company owns 16 container plants located throughout the eastern half of the United States. Linerboard and corrugating medium are the principal materials used in the manufacture of corrugated containers. The container plants have an aggregate production capacity of approximately 8 billion square feet of containerboard per year. The plants in 1994 produced approximately 7.9 billion square feet of containerboard. In 1994, fourteen of the container plants operated on two shifts, one on one shift and one on three shifts. The Company could increase capacity by running the one plant that is on one shift, two additional shifts, as well as adding a third shift to the fourteen plants presently on two shifts. The Company's paper mill production resulted in supplying of approximately 78% of the container plants' requirements for linerboard and corrugating medium for 1994 which was down from the 87% that was supplied in 1993. The Company's container plants accounted for approximately 2% of the total national industry shipments during 1994 up from the approximately 1.9% in 1993. The Company's corrugated container business services approximately 2,700 customers. The single largest customer accounted for approximately 3.3% of the Company's corrugated container shipments for 1994 and the ten largest customers accounted for approximately 15.6% of the Company's 1994 corrugated container revenues. The Company considers its container plant facilities to be in satisfactory condition. To maintain and upgrade these facilities, the Company spent $9.5 million in 1994 and has adopted a budget of $10.2 million for its 1995 capital maintenance and upgrade program. The Company maintains a laboratory facility located in Louisville, Kentucky, which tests container components, materials and workmanship to ensure quality control for container products. (4) Company-owned timberlands are the principal source of woodchips and pulpwood for the paper mill. Cellulose fiber which is produced primarily from wood chips and pulpwood is the principal raw material used in the manufacture of linerboard. The Company owns approximately 700,000 acres of timberland, of which approximately 665,000 acres are situated in northwestern Florida and the remaining 35,000 acres are situated in southern Georgia. Presently, approximately 624,000 acres have been planted as managed plantations to facilitate harvesting and reforestation and to maximize timber yields. During the current planting season, November, 1994 through the end of February, 1995 the Company planted 18 million seedlings on 24,500 acres. The Company owns, in total, approximately 1.1 million acres of land. Six forestry units and a wood procurement unit manage the timberlands. The timberlands are harvested by local contractors pursuant to agreements which generally are renewed annually. Timber harvested from Company timberlands accounted for 1,119,632 tons or 54% of mill wood requirements in 1994, compared to 56% in 1993. The Company has wood chipping facilities located at the paper mill, Lowry and Newport, Florida. Recycled fiber is obtained in part from third parties and in part from mill operations. In 1994 and 1993, recycled or secondary fiber supplied approximately 17% of the mill's total fiber requirements. We expect to use approximately 22% recycled fiber in our 1995 production. The Company operates a nursery located in Capps, Florida. The nursery conducts research to produce faster-growing, more disease-resistant species of pine trees, and produces seedlings for planting on Company-owned plantations. In addition, the Company in cooperation with the University of Florida, is doing experimental work in genetics on the development of superior pine seed orchards. In 1994 and 1993 capital expenditures in the forestry operations were approximately $5.5 million and $5.3 million, respectively. The Company has adopted a capital expenditure program for 1995 to reinvest approximately $5.5 million in these operations. These expenditures include nursery expense and tree planting. In 1994 the mill at Port St. Joe spent $3.0 million on environmental related items. These were for asbestos removal and disposal, and repair of the recovery boiler precipitator. The Company has budgeted $5.6 million in 1995 for predominantly capitalized environmental items. The main items in 1995 will be for additional asbestos removal and disposal, and modifications to meet proposed Environmental Protection Agency Cluster Rule Regulations. The mill at Port St. Joe is in compliance at this time in all environmental areas under the present existing laws, rules and permits. The Company's concerns at this point are with proposed new regulations for permits in the area of both air and water under the new "Cluster Rule". The "Cluster Rule" is a proposal to combine the air and water regulations into one. The U.S. Environmental Protection Agency (EPA) is also considering adding the new solid waste rule to the "Cluster Rule" umbrella. The proposed "Cluster Rule" was issued in draft form in the fall of 1993. Additional changes to the air rules will be announced in mid 1995. Compliance with the final rules as presently drafted will be required by 1998. The greatest (5) concern remains in the area of dioxin and other toxins in the dioxin family. If the industry continues to be allowed to bleach via chlorine substitution as proposed in the new rule, the industry will be able to comply. If, however, the proposed regulations are changed to require total chlorine free bleaching, then the paper industry, as well as, a number of other industries and cities will be faced with major expenditures in order to comply. In the container plants, there are no known major environmental problems at this time. In 1994, the Company had expenses at several plants, mostly for closure of a lagoon, with the total for all plants being less than $0.4 million. Anticipated spending is approximately $0.8 million in 1995 on similar items. The forestry operation continues to have no major environmental problems. The one area of expense in 1994 was at one of the forestry units in connection with fuel contamination of soil. Approximately $0.3 million was spent on this in 1994 and it is estimated that $0.1 million will be spent in 1995 for clean-up and monitoring the ground water. No problems are anticipated at any other forestry units. Transportation The Company owns 54% of Florida East Coast Industries, Inc. which in turn owns 100% of Florida East Coast Railway Company (FEC). The Company also owns and operates Apalachicola Northern Railroad Company (ANRR). The common stock, par value $6.25 per share, of Florida East Coast Industries, Inc. is registered pursuant to Section 12(b) of the Securities Exchange Act (Commission file number 2-89530). Both FEC and ANRR are subject to regulation by the Interstate Commerce Commission and, in some areas, the State of Florida. These governmental agencies must approve, prior to implementation, changes in areas served and certain other changes in operations of FEC and ANRR. The principal business of FEC is that of a common carrier of goods by rail over 442 miles of main and branch line track all in the state of Florida. The mainline extends 351 miles from Jacksonville on the north, to Miami on the south, with 91 miles of branch line extending west from Fort Pierce to Lake Harbor. Principal commodities carried by the FEC in its rail service include automotive vehicles, crushed stone, cement, trailers-on- flatcars, containers-on-flatcars and basic consumer goods such as food. FEC is the only railroad serving the area between Jacksonville and West Palm Beach on the east coast of Florida. Common motor carriers are competitors throughout the entire transportation system and CSX Transportation, Inc. is a competitor over that section of track extending southward from West Palm Beach to Miami for rail traffic, excluding that of trailer-on-flatcar and container-on-flatcar traffic. (6) The operating statistics set forth below reflect FEC's performance for the latest three years: Operating Statistics (In thousands except percentage data) Years Ended December 31, 1994 1993 1992 Operating revenues $ 163,098 $ 162,318 $ 138,736 Operating income 28,506 28,843 18,876 Operating margin 17.5% 17.8% 13.6% Tonnage 13,693 14,709 13,772 Revenue ton miles 4,487,401 4,257,000 4,157,594 The FEC had capital expenditures in 1994 of $21.3 million in addition to maintenance expenditures of $55.8 million. This compares to 1993 capital expenditures of $19.8 million and 1992 of $17.9 million. The maintenance expense in 1993 was $53.7 million and 1992, $33.8 million. ANRR is a short line railroad that operates exclusively within the state of Florida, over 90 miles of main track and 6 miles of rail yard track extending from Port St. Joe to Chattahoochee where it connects with an unaffiliated carrier. All 90 miles of the main line are 100% concrete crossties. Although it is a common carrier, most of ANRR business consists of carrying coal and items related to wood. In 1994, 68.1% of its carloads were carrying coal. The carloads of coal carried in 1993 and 1992 were 67.5% and 67.8% respectively of the total. The other main commodity carried is wood products, consisting of pulpboard, woodchips and pulpwood. These products totaled 24.6% of the total 1994 carloads, 24.6% in 1993 and 24.1% in 1992. The other items carried by ANRR are tall oil, chemicals, stone and clay products and recyclable items. Certain operating statistics for the latest three years are as shown: Operating Statistics (In thousands except percentage data) Years Ended December 31, 1994 1993 1992 Operating revenues $ 12,886 $ 12,685 $ 12,366 Operating income 1,398 1,969 2,614 Operating margin 10.9% 15.5% 21.1% Tonnage 4,227 4,187 4,047 Revenue ton miles 407,197 401,907 380,696 (7) Capital expenditures by the ANRR in 1994 were $3.8 million which compares to 1993 capital expenditures of $4.2 million and 1992 of $3.4 million. The ANRR has budgeted $2.2 million in 1995 for capital expenditures. FEC is a party to various proceedings before state regulatory agencies relating to environmental issues. In addition, FEC, along with many other companies, has been named a potentially responsible party in proceedings under Federal statutes for the clean up of designated Superfund sites at Jacksonville, Florida and Portsmouth, Virginia. FEC has made an estimate of its likely costs attributed to sites for which its clean up responsibility is probable and a liability has been recorded. Such liability is not material to the financial position of the FEC. Based upon management's evaluation of the other potentially responsible parties, the Company does not expect to incur additional amounts even though the Company has joint and several liability. FEC is not aware of any monetary sanctions to be proposed which in the aggregate, are likely to exceed $100,000, nor does it believe that corrections will necessitate significant capital outlays or cause material changes in its business. ANRR has environmental problems involving stormwater run-off and contaminated soil from fuel oil and gasoline. These items cost approximately $1.4 million in 1994 for both capital expenditures and expense and are budgeted for $0.3 million in 1995. Sugar In 1971, the Company acquired a 60% interest in Talisman Sugar Corporation (TSC) which is a grower of sugarcane located in the fertile Belle Glade area in south central Florida. In addition to growing sugarcane TSC harvests the cane and processes the cane into raw sugar. In 1984, the Company acquired the remaining 40% interest in TSC, thereby owning 100% of it today. The Company at the end of 1994 owned approximately 48,600 acres of agricultural land and leased approximately 7,000 acres for use in its sugarcane growing operation. Sugarcane production and processing is seasonal in nature. Sugarcane plantings generally yield two harvests before replanting is necessary. The Company harvests its sugarcane crop in one-year cycles, as do other Florida producers. The Company generally plants sugarcane in the fall of each year. Harvesting of a crop generally commences in October of each year and continues into the following March. During the 1994-1995 crop the TSC grew sugarcane on approximately 43,000 acres of land. The majority of the Florida sugarcane producers, including TSC, harvests sugarcane using mechanical cane harvesters. This is a change from harvesting sugarcane by hand as was the historical practice. Cane cutting and loading are performed with mechanized harvesters which reduces significantly the labor requirements, resulting in substantial cost savings and permits the grinding of the sugarcane more quickly after harvesting, resulting in improved efficiency. Mechanized harvesting, however, is less (8) precise than manual harvesting, resulting in greater amounts of chaff and trash being mixed in with the harvested sugarcane. As a result, a minimal amount of sucrose is lost through leaching into the trash and chaff. In addition, mechanized harvesting causes more damage to cane fields than manual harvesting, resulting in slightly lower cane yields in subsequent crops. Consequently, yields of sucrose from harvested sugarcane and its crop yields per acre are generally slightly lower than those cut by hand. These negative effects are far outweighed by the labor cost savings and other efficiencies resulting from mechanized harvesting. The Company's sugar mill has a grinding capacity of approximately 11,500 tons of sugarcane per day. The Company ground approximately 1,296,000 tons of sugarcane in 1992, approximately 1,321,000 tons in 1993 and approximately 1,184,000 tons of sugarcane in 1994 from Company operated lands. Total raw sugar production for the Company was approximately 117,000 tons in 1992, 119,000 in 1993, and 114,261 tons in 1994. The sugar mill is virtually energy self-sufficient, with almost all of its energy requirements supplied through the use of bagasse, a by-product of the mill's cane grinding operations. The Company harvests and processes its sugarcane into raw sugar and sells its entire production to Everglades Sugar Refinery, Inc., a wholly-owned subsidiary of Savannah Foods & Industries, Inc., pursuant to a contract which was to expire in 1996. In 1993, this contract was amended and extended through the 1997/1998 crop year and is automatically renewed each crop year thereafter. Either party can decline to renew by giving notice to the other party no later than October 1 of the fourth year prior to the termination date. Under the contract, the Company is paid for its sugar based on market prices. The sugar industry is highly competitive. The Company competes with foreign and domestic sugarcane and sugar beet processors, as well as manufacturers of corn sweeteners and artificial sweeteners such as aspartame and saccharin. Sugar is a volatile commodity subject to wide price fluctuations in the marketplace. Sugar prices have been supported by the United States Government through the Agriculture and Food Act of 1981 which restricts sugar imports in order to support the domestic sugar price. This Act was scheduled to terminate in 1990. The United States Congress in 1990, passed the Food, Agriculture, Conservation and Trade Act of 1990, which extended this price support program to cover the 1991-95 crops of sugarcane. In 1994 the State of Florida enacted the Everglades Forever Act which significantly affects agriculture in the Everglades Agricultural Area (EAA).The Act calls for the creation of six Stormwater Treatment Areas (STA) as buffers between the Everglades Protection Area and the EAA. The Act imposes substantial taxes on TSC and other agricultural interests to pay for construction of the STAs. As with the Forest Products segment of the Company, there is concern in the Sugar segment with the new Clean Air Act and not knowing at this time what will be the complete impact of the Act on this operation. The sugarcane growers, as well as, TSC will need to get Title V permits as required under the Clean Air Act. These permits presently are required prior to November, 1995. (9) Capital expenditures by TSC in 1994 were $3.4 million and compares to $2.9 million in 1993 and $7.4 million in 1992. The capital expenditures budget for 1995 is $4.3 million. The Company had only minor expenditures for environmental problems, less than $0.4 million, in 1994. The only environmental problem TSC has, at present, is in the removal of water from its property. TSC has installed equipment to monitor the quality and quantity of water being pumped out of its pumping stations as required by the local Water Management District. Communications St. Joe Communications, Inc. (SJCI) provides unregulated tele- communications services such as the sale of communications systems and of telephone equipment to commercial and residential customers and in addition owns three regional operating telephone companies. The operating companies provide local telephone communications services in 12 northwestern Florida counties, 2 southern Alabama counties and 1 Georgia county through 19 exchanges located in the region which service approximately 36,900 access lines. In addition to providing local exchange telephone service, the Company's facilities are connected with other telephone companies and the nationwide toll networks of long distance carriers. The Company also supplies telephone and other communications service to Tyndall Air Force Base pursuant to a long-term contract. In addition to its regular telephone services, the Communications segment participates in four limited partnerships with major telecommun- ications companies as partners. These interests in the four partnerships vary from 12% to 51% and are to provide cellular telephone service in their operating territory. These four partnerships operate in the following areas: (1) Tallahassee - Perry, Florida (serving six counties in Florida); (2) Port St. Joe, Florida (serving four counties in Florida); (3) Fort Walton Beach, Florida (serving five counties in Florida) and (4) southeast Alabama (serving twelve counties in Alabama). These partnerships operated 66 cell sites at December 31, 1994 having added 16 cell sites in 1994. The Company anticipates adding 20 more in 1995. The Company owns and leases to MCI on a primary term of ten years, with renewal option provisions, a fiber optic transmission network extending from Fort Walton Beach to Tallahassee of approximately 150 miles. The Company owns fiber optic routes from Port St. Joe to Blountstown, Carrabelle, and Tyndall Air Force Base, Blountstown to Bristol and Perry to Keaton Beach and one-half of the distance from Perry to Tallahassee. These locations are all in Florida and total over 326 miles. This network is used exclusively to serve intercompany and intracompany routes. The intracompany routes are major feeder routes between exchanges and/or electronic remote facilities associated with the various exchanges. The companies will continue to install fiber optic cable for these same basic transmission functions. (10) SJCI has a policy to invest in the latest, most advanced equipment and technology. In keeping with this policy SJCI expended $5.4 million on capital improvements in 1994 which compares to $5.3 million that was spent in 1993 and $7.6 million in 1992. SJCI has budgeted $3.9 million for 1995 capital improvements. The Communications operations are subject to regulations by the Public Service Commissions of the states of Florida and Alabama with respect to intrastate services and the Federal Communications Commission with respect to interstate services. The operating companies are limited to certain specified rates of return on its regulated operations and in 1990 and 1991 exceeded these permitted rates of return and were required to rebate the excess revenue to its customers. Real Estate The Real Estate segment of the Company consists of two operations, one a division of St. Joe known as Southwood Properties (Southwood), and Gran Central Corporation (Gran Central), a subsidiary of Florida East Coast Industries, Inc. The Company reorganized into industry segments in 1985 and at that time put most of St. Joe's investment and developable real estate into Southwood. Gran Central was incorporated in 1981, but was not very active until 1984 when, by reorganization, it received all Florida East Coast Industries, Inc. non-operating real estate. The Real Estate segment was established for more efficient management and for better planning of future development, sales and/or leasing of various parcels of property. The property in this segment is suited for development in all areas, commercial, industrial, residential and resort. The Company began in the mid 80's to actively pursue plans to develop these real estate properties. The Real Estate segment became a significant business operation and for the first time in 1987 was reported as a separate segment of the Company. The Company has not and does not intend to enter into any debt financing arrangements in connection with its development activities. Rather, the Company intends to fund those projects with cash from operations and from sales of certain properties. Because the Company will not incur significant financing costs, the Company believes that it will bring a long- term perspective to its development strategy and will be better able to withstand any cyclical downturns in the Florida real estate market. In addition, the Company intends to take a conservative approach to development and to develop projects only to the extent market conditions and internally generated funds permit. Accordingly, it can be expected that it will take many years before the Company may be able to complete developments covering significant portions of its developable properties. The Company's objective is to emphasize the long-term capital appreciation of its real estate assets and as a consequence, the Company expects that substantially all of the cash flow generated from real estate development activities will be reinvested in these activities. (11) The growth of the panhandle area, where the Company owns significant acreage, is expected to continue, although at a much lower rate than is generally expected for the rest of the state. Florida's fastest population and employment growth areas are expected to be along both coasts (excluding the panhandle region) and in central Florida. Gran Central owns sizable acreage within several high-growth areas along Florida's east coast, including, but not limited to, the West Palm Beach, Melbourne-Titusville, Daytona Beach, Miami-Hialeah and Fort Pierce areas. The focus of Gran Central's activities has been the Miami and Jacksonville area. Although this growth has provided, and is expected to continue to provide, significant real estate development opportunities, there is substantial concern among state and local authorities about the impact that this development may have on the environment and facilities and services provided by municipalities. As a result, land use and environmental regulations are becoming more complex and burdensome. Development of real property in Florida entails an extensive approval process which involves regulatory agencies with overlapping jurisdictions. The process requires compliance with the Local Government Comprehensive Planning and Land Development Act (the "Growth Management Act"). In addition, development projects that exceed certain specified regulatory thresholds require approval of a comprehensive Development of Regional Impact (DRI) application by a state-appointed regional planning council. Compliance with the Growth Management Act and the DRI process is usually lengthy and costly and can be expected to have a material effect on the Company's real estate development activities in the area of land use and its application to wetlands. Southwood manages the extensive properties that the Company owns and has identified as suitable for development in the Florida panhandle and in St. Johns county. These wooded properties include substantial gulf, lake and riverfront acreage and, therefore, are well suited to residential and resort development, including development as large residential and mixed-use planned communities. A portion of the Company's property along the northwestern coast of Florida is suitable for commercial or industrial development. Southwood's general strategy for developing its residential and mixed-use properties will be to install infrastructure improvements, such as sewers, utility hookups and roads, and to sell lots to other developers or individuals for building in accordance with the master development plan formulated for the community. At present, the Company does not intend to build individual homes. In 1991, Southwood completed the construction of its first office building containing 11,700 square feet. This building is in the Southwood Center Office Park, Panama City, Florida and at December 31, 1994 was 100% leased. Architectural design for the next building at this location was completed during 1994 and site design and permitting are currently active. Southwood, in 1994, sold the remaining 12 lots in Woods II, and the remaining lots in the Woodmere subdivision, all being in Panama City. The Company sold the last 21 lots at Old Florida Beach subdivision, Walton County, Florida. In 1994 design and permitting continues in Phase III of the Woods for 50 lots. The Retreat, which will be a 100 lot, gulf-front subdivision near Old (12) Florida Beach in Walton County is currently in the design and permitting stage. Phase I of 50 lots will be completed this year with the first sales anticipated for 1996. Final engineering and permitting for Summerwood, a 200 lot subdivision in Bay County, is expected to be completed by mid summer. Construction will start this year with the first sales taking place in early 1996. Final permitting is expected by mid year for Camp Creek subdivision, an 18 lot gulf-front subdivision in Walton County, with sales possible by year-end. Southwood had approximately $0.3 million in capital expenditures in 1994 compared to $1.5 million in 1993. The Company has budgeted $1.8 million in capital expenditures for 1995. The development properties owned and managed by Gran Central total approximately 17,900 acres. These properties are in thirteen counties situated in a corridor running along the eastern seaboard of Florida between Jacksonville and Miami. They include both urban and rural properties on sites that range in size from parcels of under one acre to a tract of over 6,000 acres. Many of the properties are located on strategic urban streets or are easily accessible by major highways such as Interstate 95 or U. S. Route 1 and several are located adjacent to mass transit facilities. Approximately two-thirds of Gran Central's properties are located in or adjacent to industrial and commercial corridors, and are well suited to the development of office buildings, office/distribution parks and industrial parks. Gran Central has been pursuing planning, permitting and infrastructure development and now has approximately 3.8 million square feet of buildings. Approximately 89% of the leasable space was under lease at year-end 1994 compared to 88% in 1993 and 90% in 1992. In 1994, Gran Central completed six buildings with a total square footage of 686,000. Gran Central had capital expenditures of $28.0 million in 1994 compared to $34.1 million in 1993 and expects to spend $35.3 million in 1995. Investments The Company in addition to its operations has investments in U. S. Government securities, tax exempt municipal bonds, certificates of deposit, remarketed certificates of participation, common and preferred stocks, and other corporate debt securities. The Company's marketable securities include common stock of E. I. duPont de Nemours & Company, General Motors Corporation and General Motors Corporation Class-H stock. New Products Refinements of existing products are developed and introduced in the forest products segment of the Company every year. During 1994, no single refinement or group of refinements was introduced which would require the investment of a material amount of St. Joe's assets or which otherwise would be considered material. (13) Sources and Availability of Raw Materials During 1994 and 1995 to date, all of the raw materials the Company uses were available in adequate supply from multiple sources. St. Joe owns slightly over one million acres of timberland, of which approximately 700,000 acres are suitable for growing commercial species of trees. Such timberland is the main source of supply for its linerboard mill which in turn supplies a major part of the requirements for the Company's corrugated box operations. The remaining timber requirements for the linerboard mill are obtained on the open market under short-term contracts. Talisman owns or leases approximately 55,100 acres of land in Palm Beach County, Florida, of which approximately 43,000 acres are being used to grow sugarcane. Patents and Licenses St. Joe did not obtain any new patents or licenses in 1994. The Company has pending one application for a trademark in the Container Company. Seasonality The sugarcane production and processing segment is seasonal with one sugarcane crop being harvested each year. None to little significant seasonality exists for products or services in the other segments of the Company. Working Capital In general, the working capital practices followed by the Company are typical of industries in which it operates. During some periods the accumulation of inventories in the sugar operations prior to expected shipments reflects the seasonal nature of this industry and may require periodic short-term borrowing. Customers Major customers exist for each of the Company's industry segments. TSC has a contract with Everglades Sugar Refinery, Inc. to purchase the entire raw sugar production. This contract runs through the 1997/1998 crop year and is automatically renewed each crop thereafter. Either party can decline to renew by giving notice to the other party no later than October 1 of the fourth year prior to the termination date. No single customer accounts for 10% or more of the Company's consolidated revenues. Research and Development St. Joe maintains a nursery and research facility in Capps, Florida, which grows seedlings for use in reforestation of its lands. Experiments in forestry genetics, including research on the production of faster growing, (14) more disease-resistant pine species, are also conducted at this facility. The Company also participates through cooperation with the University of Florida in their Genetics Co-op program. This experimentation work is in genetics, plantation and fertilization. The amounts spent during the last three fiscal years on Company-sponsored research and development activities were not material. Employees The Company had approximately 5,000 employees at December 31, 1994. Approximately 70% of the Company's employees are covered by collective bargaining agreements with 9 different unions. These agreements generally have terms of between one and four years and have varying expiration dates. The Company considers its relations with its employees to be good. Executive Officers of the Registrant Set forth below are the names, ages (at March 15, 1995), positions and offices held, and a brief account of the business experience during the past five years of each executive officer. Name Age Position with Company Winfred L. Thornton 66 Chairman of the Board and Chief Executive Officer since 1991; President 1984-1991; Director since 1968; President and Chairman of the Board of Florida East Coast Industries, Inc. since 1984; President of FEC 1964-1984. Robert E. Nedley 56 President since 1991; Vice President 1981-1991; Director since 1989. Howard L. Brainin 65 Vice President and Director since 1992. Edward C. Brownlie 57 Vice President - Administration Director since 1982. E. Thomas Ford 62 Vice President since 1972; Director since 1989. Stanley D. Fraser 70 Vice President since 1972; Director since 1982. There are no family relationships among the persons named above. All officers serve at the pleasure of the Board of Directors of the Company and there is no arrangement or understanding between any of the officers of the Company and any other persons pursuant to which such officer was selected as an officer. Each officer has been elected to the position shown until the next annual election of officers, which is to be held on May 9, 1995. (15) ITEM 2. PROPERTIES The principal manufacturing facilities and other materially important physical properties of the Company at December 31, 1994 are listed below and grouped by industry segment. All properties shown are owned in fee simple except where otherwise indicated. Corporate Facilities Jacksonville, Florida - Occupies approximately one and one-half floors of a four story Company-owned building. Forest Products Forestry Management Facilities Albany, Georgia Port St. Joe, Florida Hosford, Florida West Bay, Florida Newport, Florida Wewahitchka, Florida Chip Plants Lowry Newport Nursery and Genetics Research Facility Capps, Florida Pulpwood Procurement Offices Port St. Joe, Florida Paper Mill Port St. Joe, Florida Container Manufacturing Plants Atlanta, Georgia Lake Wales, Florida Baltimore, Maryland (subject to Industrial Birmingham, Alabama Revenue Bond Financing Charlotte, North Carolina $8.5 million) Chesapeake, Virginia Laurens, South Carolina Chicago, Illinois Louisville, Kentucky Dallas, Texas Memphis, Tennessee Dothan, Alabama Pittsburgh, Pennsylvania Hartford City, Indiana Port St. Joe, Florida Houston, Texas Marketing Offices Union, New Jersey (leased) Agricultural Lands The Company owns slightly over one million acres of agricultural lands in Florida and Georgia and leases an additional 4,800 acres. (16) Transportation FEC owns three four-story buildings in downtown St. Augustine which it uses for its corporate headquarters. Its transportation facilities include 351 miles of main track, which is mostly 132# rail on concrete crossties, 97 miles of branch line track, 210 miles of yard switching track and 124 miles of other track. FEC owns 79 diesel electric locomotives, approximately 2,800 freight cars, approximately 1,630 tractor and/or trailer units for highway service, numerous pieces of work equipment and automotive vehicles. All property and equipment owned is in good physical condition. Sugar Operations Belle Glade, Florida. The Company owns approximately 48,600 acres of land and leases approximately 7,000 acres. In addition, it owns a raw sugar mill and various types of agricultural equipment. Communications - Telephone Exchanges and Offices Alligator Point, Florida Keaton Beach, Florida Altha, Florida Laurel Hill, Florida Apalachicola, Florida The Beaches, Florida Blountstown, Florida Paxton, Florida Bristol, Florida Perry, Florida Carrabelle, Florida Port St. Joe, Florida Chattahoochee, Florida Tyndall AFB, Florida Eastpoint, Florida Wewahitchka, Florida Florala, Alabama Wing, Alabama Hosford, Florida Real Estate Southwood owns approximately 50,550 acres of investment land the majority of which is located in West Florida. The counties with the largest holdings at December 31, 1994 are as follows: County Acres Bay 25,040 Leon 9,753 Franklin 7,049 St. Johns 4,321 Walton 2,012 Wakulla 1,153 In addition to these holdings the Company has another approximately 20,000 acres in West Florida that it considers investment or developable property. Southwood owns an office building in Panama City, Florida which was completed in 1991 and contains 11,700 square feet. (17) Gran Central at December 31, 1994 owned approximately 17,900 acres of land held for lease development and/or sale. In addition, it manages approximately 1,430 acres owned by FEC. The largest holdings by counties are as follows: County Acres Volusia 3,560 St. Johns 3,530 Flagler 3,460 Brevard 2,810 Dade 1,700 Duval 1,530 Manatee 900 Gran Central also owned at year-end 1994 forty-six buildings as detailed below; Number of Rentable Year Location Buildings Type Square Feet Built duPont Center 1987/ Jacksonville, FL 2 Office 144,000 1988 Barnett Plaza Jacksonville, FL 1 Office 59,000 1982 Gran Park at Interstate South Office/Showroom/ 1987/ Jacksonville, FL 6 Warehouses 260,000 1989 Gran Park at the Avenues 2 Office/Showroom/ 101,000 1992 Jacksonville, FL Warehouses/ 2 Office 145,000 1992/ 1993 1 Office/Warehouses 139,000 1994 Gran Park at Melbourne Office/Showroom/ Melbourne, FL 1 Warehouse 28,000 1989 Gran Park at 1 Office/Showroom Riviera Beach, FL Warehouse 62,000 1987 Lewis Terminals 2 Rail Warehouses 176,000 1982/ 1987 4 Cross Docks 75,000 1987/ 1991 Gran Park - McCahill Miami, FL 2 Rail Warehouses 468,000 1992/1994 (18) Gran Park at Miami Miami, FL 5 Office/Showroom/ 368,000 1988/ Warehouses 1990/ 1992/ 1994 4 Office/Warehouses 382,000 1990/ 1991/ 1992/ 1993 4 Rail Warehouses 398,000 1989/ 1990/ 1993/ 1994 5 Front Load Warehouses 604,000 1991/ 1992/ 1993 1 Double Front Load Warehouse 239,000 1993 1 Office Service Center 41,000 1994 Hialeah, FL 1 Cross Dock 20,000 1987 Pompano, FL 1 Rail Warehouse 54,000 1987 TOTAL 46 3,763,000 Gran Central's holdings include lands adjacent to FEC tracks which are suitable for development into office and industrial parks offering both rail and non-rail-served parcels. Certain other holdings are in urban or suburban locations offering opportunities for development of office building structures or business parks offering both office building sites and sites for flexible space structure such as office/showroom/warehouse buildings. General St. Joe considers that its facilities are suitable and adequate for the operations involved. All facilities are being productively utilized in the business. ITEM 3. LEGAL PROCEEDINGS The Forest Products segment of the Company has suits pending in several counties in West Florida contesting ad valorem tax assessments. In 1994, the Company's mill was named as a potentially responsible party under Federal regulations for the cleanup of a designated Superfund site in Tampa, Florida. The alleged violation occurred in the late 1970's or early 1980's. The Company has investigated this claim and has found no evidence that material from the mill was dumped at this site and therefore, it should not have been named as a party in this matter. (19) The Registrant, through its Transportation subsidiary, Florida East Coast Railway (FEC), was involved in a legal action versus CSX Transportation, Inc. (CSXT), alleging, in part, violations of a 1978 Agreement between CSXT and FEC and, in part, violations of the Sherman Act. The complaint alleged that CSXT has, by its actions, placed FEC in a position such that it could not fairly compete with CSXT for certain carload traffic destined to or from South Florida points served by the two railroads. In early 1992, CSXT petitioned the ICC to reopen the merger proceedings for the purpose of eliminating the merger conditions set down by the ICC in the 1967 merger of ACL/SAL railroads. Under the conditions set by the ICC prior to merger, the merged company, CSXT, was required to cooperate with FEC in matters of rates, routes, and service in a fashion allowing FEC to compete effectively with CSXT on traffic to and from West Palm Beach southward. A tentative Order by the U.S. District Court dated February 19, 1993, found that contract rates were included in the 1978 Agreements, but that CSXT could not be required to establish an equal joint-line contract rate since the Court views such action as a form of price-setting which is illegal. As reported in 1993, appeals were made in the U.S. District Court in Chicago and before the Interstate Commerce Commission in Washington. Both actions were resolved in favor of CSXT and the Company will not contest this issue further. The FEC is also involved in legal actions against the Florida Department of Revenue (FDR), and several counties of the state, for its ad valorem assessment covering the years 1987 through 1991. The FDR received a favorable decision on this case in 1991 for the years 1987 and 1988 which the FEC appealed. The years 1989 through 1991 which had been stayed, pending the outcome of the above case, have now been assessed and form the basis for new suits. In the third quarter of 1993 the FDR and FEC reached a settlement of $13.5 million as the total amount of ad valorem taxes due for the years 1987 through 1991. The FEC and ANRR are involved in various proceedings associated with environmental issues. See page 8 under discussion of the Transportation segment for details. ANRR has filed action in the courts against the FDR and several counties of the state on its ad valorem assessment covering the years 1987 through 1993. The suit covering the years 1987 and 1988 was being held in abeyance, pending final determination of the companion case of the FEC discussed above. Since the FDR settlement with the FEC, they have billed the ANRR $0.3 million as the amount required to settle the case covering these two years. The suit for the years 1989 through 1993 which was scheduled to be heard by the courts in 1993 has been reset for 1994. The amount at issue for these five years is approximately $0.6 million. The Company expects these cases will be settled in 1995. The Company knows of no other pending or contemplated legal proceedings other than ordinary routine litigation incidental to the business or property of the Company. (20) ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted during the fourth quarter of the Company's 1994 fiscal year to a vote of security holders, whether by solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Incorporated by reference to the 1994 Annual Report to Stockholders on page 11. The Company has established a regular quarterly cash dividend of $.05 per share. The dividend of $.05 per share for the first quarter of 1995 is payable on March 31, 1995 on record date of March 24, 1995. ITEM 6. SELECTED FINANCIAL DATA Incorporated by reference to the 1994 Annual Report to Stockholders on page 11. ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Incorporated by reference to the 1994 Annual Report to Stockholders Balance Sheet - Page 13 Statement of Income - Page 15 Statement of Cash Flow - Page 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements on page 12 to 29, inclusive and the Independent Auditors' Report on page 30 of the Annual Report to Stockholder for 1994 are filed as part of this Report and incorporated herein by reference thereto. (21) ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Reference is made to the information to be set forth in the section entitled "Election of Directors" in the definitive proxy statement involving the election of directors in connection with the Annual Meeting of Stock- holders of St. Joe to be held on May 9, 1995 (the "Proxy Statement"), which section is incorporated herein by reference. The Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1994, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended. The information required with respect to executive officers is set forth in Part I of this Report under the heading "Executive Officers of the Registrant", pursuant to instruction 3 to paragraph (b) of Item 401 of Regulation S-K. ITEM 11. EXECUTIVE COMPENSATION Reference is made to the information to be set forth in the section entitled "Compensation of Directors' in the Proxy Statement, which section is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Reference is made to the information to be set forth in the section entitled "Common Stock Ownership of Certain Beneficial Owners" and "Common Stock Ownership of Management" in the Proxy Statement, which sections are incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. (22) PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements The financial statements listed in the accompanying Index to Financial Statements and Financial Statement Schedules are filed as part of this Report. 2. Financial Statement Schedules The financial statement schedules listed in the accompanying Index to Financial Statements and Financial Statement Schedules are filed as part of this report. 3. Exhibits The exhibits listed on the accompanying Index to Exhibits are filed as part of this Report. (b) Reports on Form 8-K None (23) (PAGE) ST. JOE PAPER COMPANY INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (Item 14(a) 1. and 2.) Reference Annual Report Form 10-K To Stockholders Page Number Page Number Report of Independent Certified Public Accountants F-1 30 Consolidated Balance Sheet at December 31, 1994 and 1993 12 Consolidated Statement of Income for each of the three years in the period ended December 31, 1994 14 Consolidated Statement of Changes in Stockholders' Equity for each of the three years in the period ended December 31, 1994 14 Consolidated Statement of Cash Flows for each of the three years in the period ended December 31, 1994 17 Notes to Consolidated Financial Statements 19-29 Consolidated Schedules for each of the three years in the period ended December 31, 1994: VIII - Valuation and Qualifying Accounts S-1 XI - Real Estate and Accumulated Depreciation S-2-7 All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements, including the summary of significant accounting policies and the notes to the consolidated financial statements. (24) ST. JOE PAPER COMPANY INDEX TO EXHIBITS (Item 14(a) 3.) S-K ITEM 601 Documents Page (3) (a) Articles of Incorporation * (3) (b) By-Laws * (10) (b) Agreement between Apalachicola and Seminole Electric Cooperative, Incorporated dated October 14, 1982 * (b) Agreement between Talisman Sugar Corporation and Everglades Sugar Refinery dated February 11, 1986 ** (21) Subsidiaries of St. Joe (filed herewith and attached) E-1 (24) Powers of Attorney E-2 - E-3 *Incorporated herein by reference to Exhibits filed in connection with St. Joe Paper Company Registration Statement on Form 10 as filed with the Securities and Exchange Commission on April 30, 1984 (File No. 1-12001). **Incorporated herein by reference to Exhibits filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990. (25) SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 28, 1995. ST. JOE PAPER COMPANY By: Edward C. Brownlie Vice President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 8, 1995. Chairman of the Board and W. L. Thornton* Chief Executive Officer Winfred L. Thornton Jacob C. Belin* Chairman of the Executive Jacob C. Belin Committee President, Chief Operating Officer and Robert E. Nedley* Director Robert E. Nedley Vice President and Stanley D. Fraser* Director Stanley D. Fraser Vice President and Howard L. Brainin* Director Howard L. Brainin Vice President and Director (principal financial officer) Edward C. Brownlie Richard H. Dent* Director Richard H. Dent (26) Vice President and E. Thomas Ford* Director E. Thomas Ford Russell B. Newton, Jr.* Director Russell B. Newton, Jr. Walter L. Revell* Director Walter L. Revell John D. Uible* Director John D. Uible Comptroller (principal accounting officer) D. Michael Groos By: Edward C. Brownlie Attorney-in-Fact *Such signature has been affixed pursuant to Power of Attorney. See Exhibit 24. (27) Independent Auditors' Report The Board of Directors and Stockholders St. Joe Paper Company: Under date of February 28, 1995, we reported on the consolidated balance sheets of St. Joe Paper Company and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1994, as contained in the 1994 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1994. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedules as listed in the accompanying index. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As disclosed in notes 2 and 6 to the consolidated financial statements, the Company changed its method of accounting for investments to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities" at December 31, 1993. As disclosed in notes 2 and 8, the Company changed its method of accounting for income taxes effective January 1, 1993 to adopt the provisions of the Financial Accounting Standards Board's SFAS No. 109, "Accounting For Income Taxes". KPMG PEAT MARWICK LLP Certified Public Accountants Jacksonville, Florida February 28, 1995 F-1 ST. JOE PAPER COMPANY SCHEDULE VIII (CONSOLIDATED) VALUATION AND QUALIFYING ACCOUNTS Years ended December 31, 1994, 1993 and 1992 (Dollars in thousands) Balance at Additions Beginning Charged to Balance Reserves included in of Year Expense Payments End of Year Liabilities 1994 Accrued casualty reserves 22,911 9,995 5,122 27,784 (a) 1993 Accrued casualty reserves 22,916 2,443 2,448 22,911 (a) 1992 Accrued casualty reserves 23,043 3,774 3,901 22,916 (a) (a) Includes $13,250, $11,601 and $11,213 in current liabilities at December 31, 1994, 1993 and 1992, respectively. The remainder is included in "Accrued casualty reserves and other liabilities." S-1 ST. JOE PAPER COMPANY SCHEDULE XI (CONSOLIDATED) REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1994, 1993 and 1992 (Dollars in thousands) Initial Cost to Company Costs Buildings Capitalized Encum- & Tenant Subsequent to Description brance Land Improvements Acquisition Duval County Office Buildings (5) 0 1,153 6,200 26,508 Office/Showroom/Warehouse(9) 0 1,502 23,234 Land w/ Infrastructure 0 6,593 6,786 City & Residential Lots 0 371 5 77 Unimproved land & misc assets 0 915 1,548 St. Johns County Land w/ Infrastructure 0 10 1,045 Unimproved land 0 2,631 411 Flagler County Unimproved land 0 3,218 1,137 Volusia County Unimproved land 0 3,651 501 Brevard County Office/Showroom/Warehouse 0 73 1,900 Land w/ Infrastructure 0 3,797 0 Unimproved land 0 4,846 191 Indian River County Unimproved land 0 218 189 St. Lucie County Unimproved land 0 639 5 Martin County Unimproved land 0 4,671 2,344 Palm Beach County Office/Showroom/Warehouse 0 113 2,879 Rail Warehouses (2) 0 449 4,110 Cross Docks (4) 0 117 3,763 Land w/ Infrastructure 0 1,259 0 Unimproved land 0 1,596 0 Broward County Rail Warehouse 0 85 1,701 Unimproved land 0 733 701 Dade County Office/Showroom/Warehouses (5) 0 1,003 14,782 Office/Warehouses (5) 0 1,747 14,960 Rail Warehouses (6) 0 808 24,607 Cross Dock 0 137 1,018 Double Front Load Warehouse 0 768 5,485 Front Load Warehouses (5) 0 1,943 16,066 Land w/ Infrastructure 0 2,577 7,854 S-2 ST. JOE PAPER COMPANY SCHEDULE XI (CONSOLIDATED) REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1994, 1993 and 1992 (Dollars in thousands) Initial Cost to Company Costs Buildings Capitalized Encum- & Tenant Subsequent to Description brance Land Improvements Acquisition Dade County (continued) Unimproved land & misc assets 0 15,725 9,733 Putnam County Unimproved land 0 2 0 Manatee County Unimproved land 0 14 78 Gulf County Unimproved land 0 559 180 Bay County Land w/ Infrastructure 0 1 121 Office Building 0 1 1,195 Unimproved land & misc assets 0 517 121 Leon County Land w/ Infrastructure 0 603 46 Walton County Land w/ Infrastructure 0 120 480 Other Counties Unimproved land 0 105 1,949 Grand Total 0 65,270 6,205 177,705 S-3 ST. JOE PAPER COMPANY SCHEDULE XI (CONSOLIDATED) REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1994, 1993 and 1992 (Dollars in thousands) Gross Amount at Which Carried as of December 31, 1994 Land & Buildings & Land Tenant Description Improvement Improvement Total Duval County Office Buildings (5) 3,917 29,944 33,861 Office/Showroom/Warehouses (9) 5,003 19,733 24,736 Land w/ Infrastructure 13,379 13,379 City & Residential Lots 371 82 453 Unimproved land & misc assets 2,289 174 2,463 St. Johns County Land w/ Infrastructure 1,055 1,055 Unimproved land 3,042 3,042 Flagler County Unimproved land 4,355 4,355 Volusia County Unimproved land 4,152 4,152 Brevard County Office/Showroom/Warehouse 438 1,535 1,973 Land w/ Infrastructure 3,797 3,797 Unimproved land 5,037 5,037 Indian River County Unimproved land 407 407 St. Lucie County Unimproved land 644 644 Martin County Unimproved land 7,015 7,015 Palm Beach County Office/Showroom/Warehouse 599 2,393 2,992 Rail Warehouses (2) 557 4,002 4,559 Cross Docks (4) 1,262 2,618 3,880 Land w/ Infrastructure 1,259 1,259 Unimproved land 1,596 1,596 Broward County Rail Warehouse 405 1,381 1,786 Unimproved land 1,434 1,434 Dade County Office/Showroom/Warehouses (5) 3,150 12,635 15,785 Office/Warehouses (5) 3,518 13,189 16,707 Rail Warehouses (6) 4,837 20,578 25,415 Cross Dock 137 1,018 1,155 Double Front Load Warehouse 1,409 4,844 6,253 Front Load Warehouses (5) 4,326 13,683 18,009 S-4 ST. JOE PAPER COMPANY SCHEDULE XI (CONSOLIDATED) REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1994, 1993 and 1992 (Dollars in thousands) Gross Amount at Which Carried as of December 31, 1994 Land & Buildings & Land Tenant Description Improvement Improvement Total Dade County (continued) Land w/ Infrastructure 10,431 10,431 Unimproved land & misc assets 25,126 332 25,458 Putnam County Unimproved land 2 2 Manatee County Unimproved land 92 92 Gulf County Unimproved land 739 739 Bay County Land w/ Infrastructure 88 34 122 Office Building 1 1,195 1,196 Unimproved land & misc assets 524 114 638 Leon County Land w/ Infrastructure 610 39 649 Walton County Land w/ Infrastructure 600 600 Other Counties Unimproved land 2,012 42 2,054 Grand Total 119,615 129,565 249,180 S-5 ST. JOE PAPER COMPANY SCHEDULE XI (CONSOLIDATED) REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1994, 1993 and 1992 (Dollars in thousands) Life on Which Accum- Depreciation in ulated Date Latest Income Depre- Started or Statement is Description ciation Acquired Computed Duval County Office Buildings (5) 5,141 1985 3 to 40 years Office/Showroom/Warehouses (9) 3,484 1987 3 to 40 years Land w/ Infrastructure Various City & Residential Lots 59 Various 3 to 40 years Unimproved land & misc assets 173 Various 3 to 40 years St. Johns County Land w/ Infrastructure Various Unimproved land Various Flagler County Unimproved land Various Volusia County Unimproved land Various Brevard County Office/Showroom/Warehouse 352 1988 3 to 40 years Land w/ Infrastructure Various Unimproved land Various Indian River County Unimproved land Various St. Lucie County Unimproved land Various Martin County Unimproved land Various Palm Beach County Office/Showroom/Warehouse 647 1986 3 to 40 years Rail Warehouses (2) 1,034 1982 3 to 40 years Cross Docks (4) 747 1987 3 to 40 years Land w/ Infrastructure Various Unimproved land Various Broward County Rail Warehouse 492 1986 3 to 40 years Unimproved land Various Dade County Office/Showroom/Warehouses (5) 1,826 1988 3 to 40 years Office/Warehouses (5) 1,413 1990 3 to 40 years Rail Warehouses (6) 1,554 1988 3 to 40 years Cross Dock 210 1987 3 to 40 years Double Front Load Warehouse 321 1993 3 to 40 years Front Load Warehouses (5) 989 1991 4 to 40 years Land w/ Infrastructure S-6 ST. JOE PAPER COMPANY SCHEDULE XI (CONSOLIDATED) REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1994, 1993 and 1992 (Dollars in thousands) Life on Which Accum- Depreciation in ulated Date Latest Income Depre- Started or Statement is Description ciation Acquired Computed Dade County (continued) Unimproved land & misc assets 1,891 Various 3 to 40 years Putnam County Unimproved land Various Manatee County Unimproved land Various Gulf County Unimproved land 24 Bay County Land w/ Infrastructure Office Building 174 1993 3 to 40 years Unimproved land & misc assets 13 Various 3 to 40 years Leon County Land w/ Infrastructure 11 Various 3 to 40 years Walton County Land w/ Infrastructure Other Counties Unimproved land 41 Various Grand Total 20,596 Notes (a) The aggregate cost of real estate owned at December 31, 1994 for federal income tax purposes is $140,875. 1994 1993 1992 (b) Reconciliation of real estate owned: Balance at beginning of year 222,498 192,466 162,083 Amounts capitalized 28,350 31,691 30,690 Amounts retired or adjusted (1,668) (1,659) (307) Balanced at close of period 249,180 222,498 192,466 (c) Reconciliation of accumulated depreciation: Balance at beginning of year 15,475 11,306 8,127 Depreciation expense 5,145 4,169 3,272 Amounts retired or adjusted (24) (93) Balanced at close of period 20,596 15,475 11,306 (d) Table excludes $25,148 of real estate construction in progress S-7 EX-13 2 ST. JOE PAPER COMPANY CONSOLIDATED BALANCE SHEET (Dollars in thousands) December 31 ASSETS 1994 1993 Current Assets: Cash and cash equivalents $ 71,890 $ 48,304 Short-term investments 61,156 66,307 Accounts receivable 88,606 74,127 Inventories 57,673 69,398 Other assets 21,677 25,720 Total current assets 301,002 283,856 Investments and Other Assets: Marketable securities 174,027 159,523 Other assets 50,426 40,170 Total investments and other assets 224,453 199,693 Property, Plant and Equipment, net 1,026,875 1,007,722 Total Assets $ 1,552,330 $ 1,491,271 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 44,804 $ 41,515 Accrued liabilities 25,339 27,838 Income taxes payable 7,012 2,737 Long-term debt due within one year 19,672 21,309 Total current liabilities 96,827 93,399 Accrued casualty reserves and other liabilities 14,534 11,063 Long-term debt due after one year 37,220 38,947 Deferred income taxes and income tax credits 215,311 205,531 Minority interest in consolidated subsidiaries 251,457 238,878 Stockholders' Equity: Common stock, no par value; 60,000,000 shares authorized; 30,498,650 shares issued and outstanding 8,714 8,714 Retained earnings 887,520 851,511 Net unrealized gain on debt and marketable equity securities 40,747 43,228 Total stockholders' equity 936,981 903,453 Total Liabilities and Stockholders' Equity $ 1,552,330 $ 1,491,271 See notes to consolidated financial statements. (12) Management Discussion and Analysis of Balance Sheet The Consolidated Balance Sheet gives the financial position or status of accounts on the date shown and, taken as a whole, provides a picture of the entire enterprise on that date. A series of balance sheets will show the progress or movement of the enterprise from one period to the next. The balance sheet should be viewed as a unit with the income statement to obtain a sufficiently clear picture of the status and progress of a business. In 1994, the Company continued to have a strong balance sheet. Management's long standing policy of retaining funds to internally finance capital additions was continued in 1994. Cash, short-term investments and marketable securities totaled $307 million at December 31, 1994, a $32.9 million increase over the 1993 year end amount. The Forest Products segment generated $20.7 million of this increase as a result of improved operating results. Florida East Coast Industries, Inc. (FECI) received over $11 million from a condemnation sale of realty properties to the State of Florida which was invested and will be used to finance realty improvements in 1995. A reduction in unrealized gains on debt and marketable equity securities decreased the carrying value of investments by $4 million. Accounts receivable increased $14.5 million in 1994 with $12.6 million being in Forest Products. This increase reflects the strong pricing increases experienced during the year. Inventories fell by $11.7 million. A shortage of containerboard led to a $4.9 million decrease in Forest Products' inventory. The Sugar segment's inventory decreased by $6.4 million due to harvesting delays caused by rain. Other assets increased by $6.2 million, primarily due to a $2.9 million increase in the Communications segment's equity in four cellular partnerships and a $1.4 million increase in prepaid pension plan costs. Property, plant and equipment additions were $86.5 million in 1994. Depreciation expense was $62.4 million. All segments showed a net increase in fixed assets with the largest increase in FECI. Stockholders' equity at December 31, 1994 was $30.72, an increase of $1.10 or 4%. Over the last five years, stockholders' equity has increased 17%. The Company is currently a party to, or involved in, legal proceedings directed at the cleanup of two Superfund sites. The Company has accrued its allocated share of the total estimated cleanup costs for these two sites. Based upon management's evaluation of the other potentially responsible parties, the Company does not expect to incur additional amounts even though the Company has joint and several liability. The Company is subject to substantial costs arising out of environmental laws and regulations, which include obligations to remove or limit the effects on the environment of the disposal or release of certain wastes or substances at various sites. It is the Company's policy to accrue and charge against earnings environmental cleanup costs when it is probable that a liability has been incurred and an amount is reasonably estimable. As assessments and cleanups proceed, these accruals are reviewed and adjusted, if necessary, as additional information becomes available. It is not possible to quantify future environmental costs because many issues relate to actions by third parties or changes in environmental regulation. Based on information presently available, management believes that the ultimate disposition of currently known matters will not have a material effect on the financial position or liquidity of the Company, but could be material to the results of operations of the Company in any one period. As of December 31, 1994 and 1993, the aggregate environmental related accruals were $6.7 million. Environmental liabilities are paid over an extended period and the timing of such payments cannot be predicted with any confidence. The Company's financial position continues to strengthen. Net working capital (current assets less current liabilities) increased 7% at December 31, 1994 over 1993 to $204.2 million. The current ratio (current assets divided by current liabilities) grew to 3.1 from 3.0 in 1993. (13) CONSOLIDATED STATEMENT OF INCOME (Dollars in thousands except per share amounts) Years ended December 31, 1994 1993 1992 Net sales $ 479,050 $ 387,720 $ 395,074 Operating revenues 206,712 204,248 196,838 685,762 591,968 591,912 Cost of sales 412,577 360,679 366,342 Operating expenses 150,901 147,270 146,837 Selling, general and administrative expenses 57,806 51,917 54,677 621,284 559,866 567,856 Operating profit 64,478 32,102 24,056 Other income (expense): Dividends 2,187 2,144 2,312 Interest income 11,085 9,575 13,581 Interest expense (4,080) (3,711) (3,884) Gain on dispositions of property, plant and equipment 14,450 1,085 2,511 Other, net 3,753 3,380 2,938 27,395 12,473 17,458 Income before income taxes, minority interest, and cumulative effect of change in accounting principle 91,873 44,575 41,514 Provision for income taxes: Current 21,905 13,294 14,259 Deferred 12,032 8,915 591 Total provision for income taxes 33,937 22,209 14,850 Income before minority interest and cumulative effect of change in accounting principle 57,936 22,366 26,664 Less income applicable to minority interest in consolidated subsidiaries 15,827 10,241 11,074 Income before cumulative effect of change in accounting principle 42,109 12,125 15,590 Cumulative effect of change in accounting principle for income taxes --- 20,518 --- Net income $ 42,109 $ 32,643 $ 15,590 Per Share Data: Income before cumulative effect of change in accounting principle $ 1.38 $ 0.39 $ 0.51 Cumulative effect of change in accounting principle for income taxes --- 0.68 --- Net income per share $ 1.38 $ 1.07 $ 0.51 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Dollars in thousands except per share amounts) Years ended December 31, 1994 1993 1992 COMMON STOCK Balance, at end of year (1994, 1993 and 1992 - 30,498,650 shares) $ 8,714 $ 8,714 $ 8,714 RETAINED EARNINGS Balance, at beginning of year $ 851,511 $ 824,968 $ 815,478 Net income 42,109 32,643 15,590 Dividends: Cash ($0.20 per share - 1994, 1993 and 1992) (6,100) (6,100) (6,100) Balance, at end of year $ 887,520 $ 851,511 $ 824,968 NET UNREALIZED GAIN ON DEBT AND MARKETABLE EQUITY SECURITIES Balance, at beginning of year $ 43,228 $ --- $ --- Decrease in net unrealized gain, net of tax effect (2,481) --- --- Cumulative effect of change in accounting principle for investments --- 43,228 --- Balance, at end of year $ 40,747 $ 43,228 $ --- See notes to consolidated financial statements. (14) Management Discussion and Analysis of Statement of Income The Consolidated Statement of Income compares in summary form the results of operations for the three year period 1992, 1993 and 1994. This discussion is to provide help in understanding the significant events which caused the changes between the years. Net sales and operating revenues increased 16% in 1994 over 1993 due principally to a $74.1 million increase in the Forest Products segment. All segments reported increased revenues in 1994. In 1993, net sales and operating revenues were flat with increases in the Transportation, Communications and Real Estate segments and declines in Forest Products and Sugar. Cost of sales in 1994 increased 14% over 1993 due mainly to a $46.9 million increase in Forest Products. In 1993, cost of sales decreased 2% from 1992. Operating expenses increased 3% in 1994 compared to 1993, which held steady from 1992. Selling, general and administrative expenses were 11% ($5.9 million) higher in 1994 than 1993. The 1993 expenses were $2.8 million lower than 1992. Operating profit in 1994 was slightly more than double the 1993 amount which was a third higher than 1992. Forest Products increased 109%, Real Estate 82%, Communications 32%, Sugar 25% and Transportation decreased 3% in 1994. In 1993, Forest Products, Transportation and Real Estate had increased operating profits while Sugar and Communications decreased. Other income increased in 1994 by $14.9 million due primarily to land sales of $3.5 million more by FECI and $8.7 million more by Forest Products. 1993 other income was down by $4.9 million from 1992 due to decreases in interest income and sales of property. The provision for income taxes increased $11.7 million in 1994 and $7.4 million in 1993. The 1994 increase is due to the higher income while 1993 also reflects the deferred tax effect of the change in the federal income tax rate. The Company files a consolidated federal income tax return for the parent and all 80% or greater owned subsidiaries. The effective income tax rate was 36.9%, 49.8% and 35.8% for 1994, 1993, and 1992 respectively. In 1993, the Company adopted Statement of Financial Accounting Standards No. 109 which resulted in the recognition of $20.5 million in additional income in the first quarter of 1993 for the cumulative effect of the change in accounting for income taxes. Net income before the cumulative effect of a change in accounting principle for income taxes rose $30 million in 1994 after a decline of $3.5 million in 1993. Net income per share before the cumulative effect of change in accounting principle for income taxes rose to $1.38 in 1994 compared to $0.39 in 1993 and $0.51 in 1992. Increased profitability in the Forest Products segment, a condemnation sale to the State of Florida and the other land sales mentioned above were the primary cause of the improvement in 1994. The decline in 1993 was largely due to the effect of the enacted income tax rate increase. Forest Products The operating results for the Forest products segment were dramatically affected by the rapid tightening of the containerboard market during the latter half of 1994. Domestic prices for kraft linerboard rose from $320 per ton in January 1994 to $340 per ton in June to $430 per ton in December. The average sales price of the Company's kraft linerboard rose by $40 per ton and boxes by $49 per ton. Volumes also contributed to the $74.1 million increase in Forest Products sales in 1994. Mill sales to outside customer increased 22% and container sales increased by 10%. The mill also changed its product mix as Crest White revenues rose to 60% of total mill sales compared to 55% in 1993. Sales by the forestry operation remained constant in 1994. In 1994, Forest Products revenue was 56% of the Company's total compared with 53% in 1993 and 54% in 1992. In 1993, mill sales to outside customers and our plants declined $14.1 million due to a decline in the average sales price. The container operations sales in 1993 were lower than 1992 due to a decrease in selling price and reduced volume while the forestry operation's revenues were flat. Cost of sales for the Forest Products segment rose 15% in 1994 over 1993. The container plants accounted for most of the increase largely due to the higher linerboard prices referenced above. The mill cost rose 10% on a volume increase of 9%. The forestry operation had a slightly lower cost of sales in 1994 than in 1993. In 1993, the mill and forestry units had increased cost of sales while container costs were lower than 1992 due to lower linerboard prices. The mill experienced higher natural gas and fuel oil costs in 1993 than in 1992 and spent more on repair materials. Selling, general and administrative expenses were 22% higher for the Forest Products segment in 1994 than in 1993. The mill operation decreased its expenses by 8%, forestry increased by 2% and the container plants increased by 8%. In 1993, the mill's expenses were about the same as 1992 while forestry increase 1% and containers decreased 2%. (15) Management Discussion and Analysis of Statement of Income Transportation In 1994, the Transportation segment accounted for 26% of the Company's total revenue, compared to 30% in 1993 and 28% in 1992. The Florida East Coast Railway Company (FEC) experienced an $0.8 million increase in revenue in 1994 over 1993. Adverse weather conditions in the fourth quarter slowed the gain in rock shipments which increased 6% in 1994 after growing by 14% in 1993. Intermodal shipments were slightly down in both 1994 and 1993 for FEC while automotive and other traffic increased by a small percentage in 1994 after a decline in 1993. In 1995, FEC is enlarging its scope of operations to include Macon, Georgia where it will operate an intermodal facility. The Apalachicola Northern Railroad Company's (ANRR) revenue increased by 2% in 1994 and 1993 principally due to increases in coal and pulpboard shipments. Operating expenses for the Transportation segment increased by 2% in 1994 caused principally by increased property taxes at FEC. In 1993, operating expenses dropped 2% at FEC (primarily due to decreased property taxes) and increased 10% at ANRR (due to increased depreciation and locomotive repairs). Sugar Net sales for the sugar segment increased $5.8 million on a 12,233 ton increase in volume and a slight price increase. The increased volume reduced per ton costs and led to increased profitability. In 1993, sales decreased 10% due to a reduction in volume. Cost of sales decreased 9% in 1993, again due principally to the lost volume. As a result of the Everglades Forever Act, the Company was required to pay approximately $1.3 million new taxes in 1994 Communications In 1994, Communication operating revenues grew 5% due mainly to increased interstate long distance pooling settlements. Operating expenses in 1994 were flat while selling, general and administrative expenses decreased 2% because of outsourcing of certain customer billing functions. 1993 revenues were up by 6% due mainly to the reversal of excess earning accruals made in 1992. Outside plant maintenance and increased depreciation were the main factors in the 10% growth in operating expenses compared to 1992. Selling, general and administrative expenses remained stable form 1992 to 1993. Real Estate Real Estate segment revenues increased by $11.4 million in 1994. A condemnation sale to the State of Florida in the amount of $11.3 million offset declines in other property sales. Rental income continued to increase and grew by $3.9 million in 1994. Cost of sales and operating expenses increased by $2.6 million while selling, general and administrative expenses were the same as 1993. 1993 revenues were 39% higher than 1992 due mainly to land sales. Cost of sales and operating expenses increased by $3.6 million while selling, general and administrative expenses were the same as 1992. The Company continues to add rental buildings. .6 million square feet were added in 1994 bringing the total available to 3.8 million square feet with an additional .4 million square feet of leasable space under construction at year end. (16) CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in thousands) Years ended December 31, 1994 1993 1992 Cash flows from operating activities: Net Income $ 42,109 $ 32,643 $ 15,590 Adjustments to reconcile net income to cash provided by operating activities: Cumulative effect of a change in accounting principle --- (20,518) --- Depreciation and depletion 62,392 62,872 59,757 Minority interest in income 15,827 10,241 11,074 Gain on sale of property (14,450) (1,085) (2,511) Increase in deferred income taxes 12,032 8,915 3,279 Changes in operating assets and liabilities: Accounts receivable (14,479) (2,772) 3,925 Inventories 11,725 (9,378) (1,255) Other assets (6,213) (2,865) (7,569) Accounts payable, accrued liabilities and casualty reserves 4,261 (362) (1,720) Income taxes payable 4,275 2,737 (5,674) Cash provided by operating activities 117,479 80,428 74,896 Cash flows from investing activities: Purchases of property, plant and equipment (86,450) (93,045) (120,736) Proceeds from sales of property 18,594 6,960 7,246 Purchases of investments --- (77,964) (162,031) Available for sale (1) (18,851) --- --- Held-to-maturity (1) (115,210) --- --- Proceeds from maturities of investments --- 95,941 189,542 Available for sale (1) 12,779 --- --- Held-to-maturity (1) 106,388 --- --- Cash used in investing activities (82,750) (68,108) (85,979) Cash flows from financing activities: Net change in short-term borrowings (1,658) 3,400 (4,803) Proceeds from long-term debt --- --- 7,633 Dividends paid to stockholders (6,100) (6,100) (6,100) Repayment of long-term debt (1,706) (1,735) (2,242) Dividends paid to minority interest (1,679) (1,718) (1,698) Cash used in financing activities (11,143) (6,153) (7,210) Net increase (decrease) in cash and cash equivalents 23,586 6,167 (18,293) Cash and cash equivalents at beginning of period 48,304 42,137 60,430 Cash and cash equivalents at end of period $ 71,890 $ 48,304 $ 42,137 Supplemental disclosure of cash flow information: Cash paid during the year for certain expense items: Interest $ 3,973 $ 3,340 $ 4,117 Income taxes $ 20,494 $ 12,476 $ 21,693 Mortgage assumed in purchase of property, plant and equipment $ --- $ --- $ 2,200 (1) Disclosure is not applicable for the years ended December 31, 1993 and 1992. See note 2. See notes to consolidated financial statements. (17) Management Discussion and Analysis of Statement of Cash Flows The Statement of Cash Flows details information concerning the Company's sources and uses of cash in its operating, investing and financing activities. In 1994, the Company experienced a net increase in cash and cash equivalents of $23.6 million compared to a $6.2 million increase in 1993 and a decrease of $18.3 in 1992. The improvement in 1994 was due to the increase in cash provided by operations while 1993 resulted from an increase in cash provided by operations together with reductions in cash used by investing and financing activities. Cash flows from operations increased by $37.1 million in 1994 and $5.5 million in 1993. The 1994 increase is due to the improved operations of the Forest Products segment and the condemnation sale mentioned previously. The Company purchased property, plant and equipment of $86.5 million in 1994, down from $93 million in 1993 and $120.7 million in 1992. The Real Estate segment spent $9.3 million less in 1994 than 1993 while Transportation spent $2.3 million more and the other segments remained relatively constant. In 1993, Forest Products reduced expenditures by $22.5 million, Sugar by $4.5 and Communications by $2.4 while Real Estate remained constant and Transportation increased by $1.5 million. In 1992 and 1993, the Company used $27.5 million and $18 million respectively, of its investments to fund its capital projects. The improved operating results enabled the Company to fully fund its capital needs in 1994 and increase its investments by $14.9 million. Long term debt of $1.7 million was repaid in 1994, the same amount as 1993. In addition, short term borrowing were reduced by $1.7 million as compared with an increase of $3.4 million in 1993. No new long term debt was incurred in 1994. The Company maintained its policy of paying a $0.20 per share dividend to its stockholders in 1994, as it had in 1993 and 1992. St. Joe Paper Company continues to have adequate internally generated cash flow to meet its foreseeable operating and capital needs. (18) Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands except per share amounts) 1. Majority Stockholder The Alfred I. duPont Testamentary Trust (the "Trust") owns approximately 68% of the common stock of St. Joe Paper Company, (the "Company"). The Company and its subsidiaries had no significant transactions with the Trust during the period. 2. Summary of Significant Accounting Policies Principles of consolidation -- The consolidated financial statements include the accounts of St. Joe Paper Company and all of its majority owned subsidiaries. All significant intercompany transactions and balances have been eliminated. Cash and cash equivalents -- For purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents include cash on hand, bank demand accounts, money market accounts, remarketed certificates of participation and repurchase agreements having original maturities of three months or less. Inventories -- Inventories are stated at the lower of cost or market. Cost for manufactured paper products and associated raw materials are determined under the last-in, first-out (LIFO) method. Costs for substantially all other inventories are determined under the first in, first out (FIFO) or the average cost method. Property, plant and equipment -- Depreciation is computed using both straight-line and accelerated methods over the useful lives of various assets. Depletion of timber is determined by the units of production method. Railroad and communications properties are depreciated and amortized using the straight-line method at rates established by regulatory agencies. Gains and losses on normal retirements of these items are credited or charged to accumulated depreciation. Deferred cane crop costs -- Sugar cane plantings generally yield two annual harvests, depending on weather conditions and soil quality, before replanting is necessary. New planting costs are amortized on a straight-line basis over two years. Income tax credits -- The Company uses the flow-through method of accounting for income tax credits except for credits relating to communications property and equipment which are accounted for using the deferral method with amortization over the service lives of the related assets as required by regulatory agencies. Reclassification -- The 1993 and 1992 consolidated financial statements have been reclassified to the current year formats. These reclassifications were not material to the consolidated financial statements. Earnings per common share -- Earnings per common share are based on the weighted average number of common shares outstanding during the year. Fair value of financial instruments -- The carrying amount of the following financial instruments approximated fair value because of their short maturity: cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities. The fair value of investments differs from the carrying value as disclosed in Note 6. The fair value of long term debt, as determined using current rates, approximates carrying value. (19) Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands except per share amounts) 2. Summary of Significant Accounting Policies (continued) Income Taxes -- The Company follows the asset and liability method of accounting for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes." Under SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to affect taxable income. Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. SFAS 109 also requires the recognition of a deferred tax liability on the undistributed earnings of subsidiaries applied on a prospective basis. Effective January 1, 1993, the Company adopted SFAS 109 and has reported the cumulative effect of that change in the method of accounting for income taxes in the 1993 consolidated statement of income. Investments -- Investments consist principally of certificates of deposit, remarketed certificates of participation, mortgage backed securities, municipal bonds, common stocks, redeemable preferred stocks, and U.S. Government obligations. The Company adopted the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" at December 31, 1993. Under SFAS 115, the Company classifies its debt and marketable equity securities in one of three categories: trading, available-for-sale, or held-to-maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those securities for which the Company has the ability and intent to hold the security until maturity. All other securities not included in trading or held-to-maturity are classified as available-for-sale. Trading and available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized holding gains and losses on trading securities are included in earnings. Unrealized holding gains and losses, net of the related income tax effect and minority interest in consolidated subsidiaries, on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders' equity until realized. A decline in the market of any available-for-sale or held-to-maturity security below cost that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security. Realized gains and losses for securities classified as available-for-sale and held-to-maturity are included in earnings and are derived using the specific identification method for determining the cost of securities sold. (20) Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands except per share amounts) 3. Inventories Inventories as of December 31 consist of: 1994 1993 Manufactured paper products and associated raw materials $ 27,023 $ 30,782 Materials and supplies 25,640 27,407 Sugar 5,010 11,209 $ 57,673 $ 69,398 The replacement cost of manufactured paper products and associated raw material inventories was in excess of LIFO stated cost by approximately $21,101 as of December 31, 1994 ($12,781 in 1993). 4. Accrued Liabilities Accrued liabilities as of December 31 consist of: 1994 1993 Payroll and benefits $ 4,234 $ 5,034 Payroll taxes 666 103 Property and other taxes 3,794 5,561 Accrued casualty reserves 22,136 22,911 Other accrued liabilities 9,043 5,292 39,873 38,901 Less: noncurrent accrued casualty reserves and other liabilities 14,534 11,063 $ 25,339 $ 27,838 5. Property, Plant and Equipment Property, plant and equipment, at cost, as of December 31 consist of: Estimated 1994 1993 Useful Life Land and timber $ 131,876 $ 125,675 --- Land improvements 24,919 24,628 20 Buildings 47,255 47,174 45 Machinery and equipment 1,141,013 1,102,450 10 - 30 Office equipment 5,893 6,357 6 - 10 Autos and trucks 7,888 7,205 3 - 6 Construction in progress 12,409 18,161 --- Investment property 274,328 250,013 various 1,645,581 1,581,663 Accumulated depreciation 618,706 573,941 $1,026,875 $1,007,722 Real estate properties having net book value of $142.2 million at December 31, 1994 are leased under non-cancelable operating leases with expected aggregate rentals of $74.3 million of which $20.9, $18.6, $15.9, $11.4 and $7.5 million is due in the years 1995 through 1999, respectively. (21) Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands except per share amounts) 6. Investments Investments at December 31, 1994, consist of : Amortized Carrying Fair Unrealized Unrealized Cost Value Value Holding Holding Gain Loss Short term investments (maturing within one year) Held to maturity: U. S. Government securities $ 43,041 $ 43,463 $ 43,875 $ 482 $ 70 Tax exempt municipals 3,157 3,157 3,091 --- 66 Mortgage backed securities 2,990 3,009 2,985 --- 24 Other corporate debt securities 3,473 3,499 3,499 --- --- Remarketed certificates of participation 4,986 5,061 5,061 --- --- Certificates of deposit 2,963 2,967 2,967 --- --- $ 60,610 $ 61,156 $ 61,478 $ 482 $ 160 Marketable securities Available for sale: U. S. Government securities Maturing in one to five years $ 3,003 $ 2,948 $ 2,948 $ --- $ 55 Tax exempt municipals Maturing in one to five years 4,457 4,236 4,236 --- 221 Maturing in five to ten years 22,148 21,278 21,278 --- 870 Maturing in more than ten years 3,364 3,272 3,272 --- 92 Equity securities 11,601 78,725 78,725 67,347 223 Mortgage backed securities Maturing in more than ten years 1,669 1,529 1,529 --- 140 Other corporate debt securities Maturing in more than ten years 2,250 2,176 2,176 --- 74 48,492 114,164 114,164 67,347 1,675 Held to maturity: U. S. Government securities Maturing within one year 40,080 40,080 41,136 1,056 --- Maturing in one to five years 17,249 17,226 17,350 543 419 Tax exempt municipals Maturing in one to five years 1,416 443 1,288 845 --- Other corporate debt securities Maturing in five to ten years 885 2,114 2,293 387 208 59,630 59,863 62,067 2,831 627 $108,122 $174,027 $176,231 $ 70,178 $ 2,302 (22) Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands except per share amounts) 6. Investments (continued) Investments at December 31, 1993, consist of : Amortized Carrying Fair Unrealized Unrealized Cost Value Value Holding Holding Gain Loss Short term investments (maturing within one year) Held to maturity: U. S. Government securities $ 27,658 $ 27,695 $ 28,214 $ 523 $ 4 Tax exempt municipals 2,401 2,401 2,376 --- 25 Remarketed certificates of participation 5,000 5,028 5,028 --- --- Certificates of deposit 31,063 31,183 31,183 --- --- $ 66,122 $ 66,307 $ 66,801 $ 523 $ 29 Marketable securities Available for sale: U. S. Government securities Maturing in one to five years $ 393 $ 379 $ 379 $ --- $ 14 Tax exempt municipals Maturing in five to ten years 29,961 31,387 31,387 1,426 --- Equity securities 12,059 79,746 79,746 67,687 --- Mortgage backed securities Maturing in more than ten years 3,567 3,559 3,559 --- 8 Other corporate debt securities Maturing in five to ten years 1,684 1,699 1,699 15 --- 47,664 116,770 116,770 69,128 22 Held to maturity: U. S. Government securities Maturing within one year 23,731 23,731 24,500 769 --- Maturing in one to five years 11,104 11,267 11,462 197 2 Tax exempt municipals Maturing in one to five years 1,612 1,645 2,601 956 --- Mortgage backed securities Maturing in one to five years 2,990 3,003 3,007 4 --- Maturing in five to ten years 916 916 1,491 575 --- Maturing in more than ten years 91 91 103 12 --- Other corporate debt securities Maturing in five to ten years 812 2,100 2,045 --- 55 41,256 42,753 45,209 2,513 57 $ 88,920 $159,523 $161,979 $ 71,641 $ 79 Marketable securities, including certain investments which mature within one year, are held as a developmental fund created to accumulate capital expected to be required for future improvement of the Company's real estate properties. (23) Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands except per share amounts) 7. Long-Term Debt Long-term debt as of December 31 consists of: 1994 1993 Notes payable to banks under lines of credit aggregating $70,000, due March 1995 through May 1996 with interest rates of 5.94% to 7.9% $ 32,671 $ 35,038 Rural Telephone Bank (RTB) 6.50 % to 10.25% mortgage notes with principal and interest due quarterly through 2016 15,443 15,917 Industrial Revenue Bonds payable in semiannual installments of $425 with interest payable at 67% of the prime rate 2,046 2,896 Rural Electrification Administration (REA) 2% mortgage notes with principal and interest due quarterly through 2008 3,019 3,394 Federal Financing Bank (FFB) notes at varying rates (weighted average: 1994 - 14.52%; 1993 - 14.50%) guaranteed by the REA 564 640 Mortgage loans payable to various institutions and individuals with interest rates of 4.5% to 9.75%, payable in variable installments 2,992 2,184 Other secured notes at variable interest rates and maturities 157 187 56,892 60,256 Long-term debt due within one year 19,672 21,309 Long-term debt due after one year $ 37,220 $ 38,947 The REA and RTB notes, the Industrial Revenue Bonds and the notes and mortgage loans payable are secured by company assets with a book value of approximately $47,780, $7,419 and $44,931, respectively. The aggregate amount of principal payments due in each of the years subsequent to December 31, 1994 is: Year ending December 31 Amount 1995 $ 19,672 1996 18,797 1997 1,570 1998 1,273 1999 1,213 2000 and later 14,367 $ 56,892 (24) Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands except per share amounts) 8. Income Taxes Total income tax expense for the years ended December 31, was allocated as follows: 1994 1993 1992 Income from continuing operations $ 33,937 $ 22,209 $ 14,850 Shareholders' equity, for recognition of unrealized gain (loss) on debt and marketable equity securities (2,377) 25,472 --- $ 31,560 $ 47,681 $ 14,850 Income tax expense attributable to income from continuing operations differed from the amount computed by applying the statutory federal income tax rate to pre-tax income as a result of the following: 1994 1993 1992 Tax at the statutory federal rate $ 32,156 $ 15,601 $ 14,115 Dividends received deduction and tax free interest (1,075) (937) (745) State income taxes (net of federal benefit) 2,640 1,452 1,411 Adjustment to deferred tax assets and liabilities for enacted changes in tax laws and rates --- 4,324 --- Undistributed earnings of FECI 1,245 775 --- Other, net (1,029) 994 69 $ 33,937 $ 22,209 $ 14,850 The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities as of December 31, consist of: 1994 1993 Deferred tax assets: Accrued casualty and other reserves $ 10,348 $ 10,616 Alternative minimum tax credit carryforward 14,315 12,219 State net operating loss carryforward 6,371 6,183 Other 3,304 1,914 Total gross deferred tax assets 34,338 30,932 Valuation allowance 6,371 6,183 Net deferred tax assets 27,967 24,749 (25) Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands except per share amounts) 8. Income Taxes (continued) 1994 1993 Deferred tax liabilities: Tax in excess of financial depreciation 159,531 154,817 Deferred gain on land sales 6,904 5,520 Deferred gain on subsidiary's defeased bonds 2,322 2,502 Unrealized gain on debt and marketable equity securities 23,123 25,472 Deferred gain on involuntary conversion of land 29,227 24,937 Prepaid pension asset recognized for financial reporting 7,804 7,285 Other 7,880 3,385 Total gross deferred tax liabilities 236,791 223,918 Net deferred tax liability $208,824 $199,169 Based on the timing of reversal of future taxable amounts and the Company's history of reporting taxable income, the Company believes that the deferred tax assets will be realized and a valuation allowance is not considered necessary except for those resulting from the net operating loss carryforward available for state income taxes. Because of the Company's history of reporting tax losses in certain states, the Company believes that substantially all carryforwards will not be realized and, accordingly, has recorded a valuation allowance equal to the entire amount. This valuation allowance was $6,371 and $6,183 at December 31, 1994 and 1993, respectively, which increased $188 and $547 in 1994 and 1993, respectively. The current deferred tax asset of $6,487 and $6,362 is recorded in other current assets as of December 31, 1994 and 1993, respectively. The Company has not recognized a deferred tax liability of approximately $17,862 for the undistributed earnings of FECI that arose in 1992 and prior years because the Company does not currently expect those unremitted earnings to reverse and become taxable to the Company in the foreseeable future. A deferred tax liability will be recognized when the Company expects that it will recover those undistributed earnings in a taxable manner, such as through receipt of dividends or sale of the investment. As of December 31, 1994, the undistributed earnings of the subsidiary for which no deferred tax liability was provided were approximately $48,454. For the year ended December 31, 1992, deferred income tax expense of $591 resulted from differences in the recognition of income and expense for income tax and financial reporting purposes. The sources and tax effects of those differences are: accelerated depreciation for tax purposes of $4,366; alternative minimum tax credit carryforward of ($3,025); prepaid pension cost of $1,200; accrued casualty reserves of ($468); and, other, net of ($1,482). 9. Pension and Retirement Plans The company sponsors defined benefit pension plans covering approximately 70% of its employees. The benefits are based on the employees' years of service or years of service and compensation during the last five or ten years of employment. The Company's funding policy is to contribute annually the maximum contribution required by ERISA. A summary of the net periodic pension credit follows: 1994 1993 Service cost $ 3,486 $ 2,761 Interest cost 7,418 6,147 Actual return on assets 1,365 (13,460) Net amortization and deferral (13,673) 1,272 Total pension income $ (1,404) $ (3,280) (26) Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands except per share amounts) 9. Pension and retirement plans (continued) A summary of the plans' funded status as of December 31 was: 1994 1993 Accumulated benefit obligation, including vested benefits of $86,807 and $73,780 in 1994 and 1993, respectively $ 94,485 $ 80,438 Projected benefit obligation for service rendered to date 116,101 96,177 Plan assets at fair value, primarily listed stocks and U.S. bonds 141,090 144,713 Plan assets in excess of projected benefit obligation 24,989 48,536 Unrecognized net (gain) loss 2,615 (13,618) Unrecognized prior service cost 11,545 5,393 Unrecognized transition asset (17,961) (20,527) Prepaid pension cost $ 21,188 $ 19,784 The weighted-average discount rate for the plans was 7% in 1994 and 1993. The rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation for salaried employees was 6% in 1994 and 1993. The expected long-term rates of return on assets were 8% in 1994 and 7% in 1993. The Company has an Employee Stock Ownership Plan (ESOP) for the purpose of purchasing stock of the Company for the benefit of qualified employees. Contributions to the ESOP are limited to .5% of compensation of employees covered under the salaried pension plan. The Company also has other defined contribution plans which, in conjunction with the salaried pension plan, cover substantially all its salaried employees. Contributions are at the employees' discretion and are matched by the Company up to certain limits. Expense for these defined contribution plans was $1,213, $1,387, and $1,253 in 1994, 1993 and 1992, respectively. 10. Quarterly Financial Data (Unaudited) Quarters Ended 1994 December 31 September 30 June 30 March 31 Net sales and operating revenues 186,251 166,257 165,886 167,886 Operating profit 23,599 7,887 13,972 19,020 Net income 18,802 7,520 7,627 8,160 Net income per share .61 .25 .25 .27 1993 December 31 September 30 June 30 March 31 Net sales and operating revenues 153,540 141,182 150,548 146,698 Operating profit 17,852 6,873 2,239 5,138 Net income 8,785 (875) 753 23,980 Net income per share .29 (.03) .02 .79 (27) Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands except per share amounts) 11. Segment Information The Company is engaged in five principal lines of business. These lines of business are: Forest Products - the integrated production of corrugated containers, including the cultivation and harvesting of pulpwood and the manufacture of linerboard; Transportation - the operation of two railroads within the state of Florida; Sugar - the cultivation, harvesting and processing of sugar cane; Communications - the provision of telephone services and telecommunications equipment; and Real Estate - the ownership, management and development of real estate. Total net sales and operating revenues represent sales to unaffiliated customers, as reported in the Company's consolidated income statement and intersegment sales which occur principally between the Forest Products and Transportation segments. Operating profit is net sales and operating revenues less directly traceable costs and expenses. In computing operating profit, the following items have not been considered: other income (expense) and provision for income taxes. Identifiable assets by lines of business are those assets that are used in the Company's operations in each segment. Corporate assets are composed of cash, marketable securities and miscellaneous nonsegment assets. Information by lines of business segment follows: 1994 1993 1992 Net sales and operating revenues: Forest Products $ 386,978 $ 312,875 $ 322,096 Transportation 176,074 175,095 169,439 Sugar 54,900 49,138 54,866 Communications 30,638 29,153 27,399 Real Estate 39,774 28,405 20,493 Intersegment (2,602) (2,698) (2,381) Consolidated $ 685,762 $ 591,968 $ 591,912 Operating profit: Forest Products $ 1,832 $ (19,684) $ (20,509) Transportation 29,680 30,648 26,380 Sugar 6,329 5,058 6,313 Communications 6,753 5,130 5,240 Real Estate 19,884 10,950 6,632 Consolidated $ 64,478 $ 32,102 $ 24,056 (28) Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 (Dollars in thousands except per share amounts) 11. Segment information (continued) 1994 1993 1992 Assets: Forest Products $ 371,353 $ 373,551 $ 378,461 Transportation 424,241 390,332 387,778 Sugar 93,685 96,925 90,724 Communications 70,658 65,674 63,594 Real Estate 229,449 230,343 198,236 Corporate 362,944 334,446 269,507 Consolidated $1,552,330 $1,491,271 $1,388,300 Capital expenditures: Forest Products $ 24,270 $ 24,454 $ 46,950 Transportation 25,060 22,682 21,173 Sugar 3,381 2,944 7,441 Communications 5,385 5,271 7,612 Real Estate 28,354 37,694 37,560 Consolidated $ 86,450 $ 93,045 $ 120,736 Depreciation and depletion: Forest Products $ 31,352 $ 33,015 $ 32,646 Transportation 18,706 18,147 17,112 Sugar 1,605 1,769 1,634 Communications 5,612 5,848 5,051 Real Estate 5,117 4,093 3,314 Consolidated $ 62,392 $ 62,872 $ 59,757 12. Contingencies The Company and its subsidiaries are involved in litigation on a number of matters and are subject to certain claims which arise in the normal course of business. Certain self-insurance risks with respect to losses for third party liability, property damage and group health insurance provided to employees have been retained by the Company. In the opinion of management, none of these items are expected to have a material adverse effect on the Company's consolidated financial position or results of operations. The Company is currently a party to, or involved in, legal proceedings directed at the cleanup of two Superfund sites. The Company has accrued its allocated share of the total estimated cleanup costs for these two sites. Based upon management's evaluation of the other potentially responsible parties, the Company does not expect to incur additional amounts even though the Company has joint and several liability. The Company is subject to substantial costs arising out of environmental laws and regulations, which include obligations to remove or limit the effects on the environment of the disposal or release of certain wastes or substances at various sites. It is the Company's policy to accrue and charge against earnings environmental cleanup costs when it is probable that a liability has been incurred and an amount is reasonably estimable. As assessments and cleanups proceed, these accruals are reviewed and adjusted, if necessary, as additional information becomes available. It is not possible to quantify future environmental costs because many issues relate to actions by third parties or changes in environmental regulation. Based on information presently available, management believes that the ultimate disposition of currently known matters will not have a material effect on the financial position or liquidity of the Company, but could be material to the results of operation of the Company in any one period. As of December 31, 1994 and 1993, the aggregate environmental related accruals were $6.7 million. Environmental liabilities are paid over an extended period and the timing of such payments cannot be predicted with any confidence. (29) Management's Statement The management of St. Joe Paper Company is responsible for the integrity and objectivity of the financial statements presented in this Annual Report. These statements have been prepared in conformity with generally accepted accounting principles and fairly represent the transactions and financial position of your company. Your company maintains a system of internal management controls designed to provide reasonable assurance that assets are safeguarded, transactions are properly recorded and executed in accordance with management's authorization, and that records are updated periodically to reflect assets actually on hand. These controls are supplemented by internal audits of various units of your company. Those audits are made on a random basis and are unannounced. Independent Auditors' Report The Board of Directors and Stockholders St. Joe Paper Company: We have audited the accompanying consolidated balance sheets of St. Joe Paper Company and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentations. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of St. Joe Paper Company and subsidiaries as of December 31, 1994, and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. As disclosed in notes 2 and 6 to the consolidated financial statements, the Company changed its method of accounting for investments to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities" at December 31, 1993. As disclosed in notes 2 and 8, the Company changed its method of accounting for income taxes effective January 1, 1993 to adopt the provisions of the Financial Accounting Standards Board's SFAS No. 109, "Accounting for Income Taxes". KPMG PEAT MARWICK LLP Certified Public Accountants Jacksonville, Florida February 28, 1995 (30) EX-21 3 EXHIBIT 21 ST. JOE PAPER COMPANY SUBSIDIARIES AT DECEMBER 31, 1994 St. Joe Industries, Inc. Florida East Coast Industries, Inc. General Die & Mfg. Corp. Jacksonville Properties, Inc. Forest Products St. Joe Forest Products Company St. Joe Container Company St. Joseph Land and Development Company Railroad Apalachicola Northern Railroad Company St. Joe Terminal Company Florida East Coast Railway Company Florida East Coast Deliveries, Inc. Florida East Coast Highway Dispatch Company Florida East Coast Inspections, Inc. Florida Express Carrier, Inc. Operations Unlimited, Inc. Railroad Concrete Crosstie Corporation Railroad Track Construction Company Sugar Talisman Sugar Corporation Communications St. Joe Communications, Inc. Gulf Telephone Company St. Joseph Telephone & Telegraph Company The Florala Telephone Company, Incorporated Real Estate St. Joe Utilities Company Gran Central Corporation Dade County Land Holding Company, Inc. All companies are incorporated in the State of Florida, except for The Florala Telephone Company, Incorporated, which is incorporated in the State of Alabama. E-1 EX-24 4 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENT, that each of the undersigned Directors of St. Joe Paper Company, a Florida corporation ("Corporation"), which is about to file with the Securities and Exchange Commission, Washington, D. C. 20549, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1994, hereby constitutes and appoints Winfred L. Thornton and Edward C. Brownlie, as his true and lawful attorneys-in-fact and agent, and each of them with full power to act, without the other in his stead, in any and all capacities, to sign the 1994 Annual Report of St. Joe Paper Company on Form 10-K and to file on behalf of the Corporation such Annual Report and amendments with all exhibits thereto, and any and all other information and documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorneys-in-fact and agent, and each of them, full power and authority to do and perform any and all acts and things requisite and ratifying and confirming all that each said attorneys-in-fact and agent or any one of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the date indicated below. Winfred L. Thornton E. Thomas Ford Chairman of the Board and Vice President and Director Chief Executive Officer Robert E. Nedley Stanley D. Fraser President, Chief Operating Vice President and Director Officer and Director Jacob C. Belin Russell B. Newton, Jr. Director Director Howard L. Brainin Walter L. Revell Vice President and Director Director Edward C. Brownlie John D. Uible Vice President and Director Director Richard H. Dent Director DATED: February 28, 1995 E-2 EX-24 5 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENT, that I, Richard H. Dent, a Director of St. Joe Paper Company, a Florida corporation ("Corporation"), which is about to file with the Securities and Exchange Commission, Washington, D. C. 20549, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1994, hereby constitutes and appoints Winfred L. Thornton and Edward C. Brownlie, as his true and lawful attorneys-in-fact and agent, and each of them with full power to act, without the other in his stead, in any and all capacities, to sign the 1994 Annual Report of St. Joe Paper Company on Form 10-K and to file on behalf of the Corporation such Annual Report and amendments with all exhibits thereto, and any and all other information and documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorneys-in-fact and agent, and each of them, full power and authority to do and perform any and all acts and things requisite and ratifying and confirming all that each said attorneys-in-fact and agent or any one of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand on the date indicated below. Richard H. Dent Director DATED: March 23, 1995 E-3 EX-27 6
5 1000 YEAR DEC-31-1994 DEC-31-1994 71,890 61,156 88,606 0 57,673 301,002 1,645,581 618,706 1,552,330 96,827 37,220 8,714 0 0 40,747 1,552,330 479,050 685,762 412,577 621,284 0 0 4,080 91,873 33,937 57,936 0 0 0 42,109 1.38 1.38